Additionally, once-promising partnerships with Spirit’s many competitors, such as Embraer, failed to take off due to self-inflicted wounds.īeyond the lack of supply chain diversification, persistent quality control problems continue to plague Boeing across its entire supply chain. Increased oversight and integration, which would have followed such a purchase, would have provided Boeing with a similar advantage to that of Airbus. Whatever the reason, the outcome now appears to be regrettable. The asset-lightening move may have been intended as financial engineering to appease activist investors or to address the federal government’s concern over the concentration of defense-related businesses. Some voices inside Boeing advocated for Boeing to purchase Spirit to provide direct oversight and capitalization–but senior executives have long reflexively shunned the acquisition, embarrassed by the idea of having to buy back a business, even though the cost would be relatively trivial with Spirit being only 2% of Boeing’s size. It was spun off by Boeing in 2005 to the Canadian private equity firm Onex, which took the company public just a year later, retaining 58% of ownership and 92% of the voting control! Its core role for Boeing has been primary manufacturing of the entire fuselage of the Boeing 737, as well as its nose and forward-cabin sections of most Boeing plans and other parts. Spirit had been a part of Boeing since two years after its founding in 1927. With Spirit’s outside analysts such as Bank of America ominously warning that “a significant ramp with a greener work force does not give the greatest comfort on execution,” the fact that Boeing has tried and failed for years to take control over this part of the supply chain casts its own strategic missteps in starker relief. Thus it is hardly surprising that minor problems at Spirit have boomeranged into at least three major Boeing production disruptions, with 787 halts in 20, and now the 737 disruptions this week. This is over three times the dependence of Boeing’s competitors such as Airbus, which makes its own fuselages. In fact, with Boeing represents a whopping 60% of Spirit’s revenues. Boeing is basically solely dependent on Spirit Aerosystems as its outsourced aerostructure manufacturer. However, the seemingly unending procession of quality control issues speaks to three specific challenges that are still plaguing Boeing’s supply chain and which threaten to derail Calhoun’s plans mid-flight.įirst, as supplier Spirit Aerosystems’ fuselage issue reminds us, Boeing’s supply chain diversification–or lack thereof–makes it unusually vulnerable to singular choke points. In fact, just last year, we named Calhoun one of our five CEOs of the year, crediting him with finally guiding Boeing to take off after a long tarmac delay. ![]() He deserves tremendous credit for charting a path back to profitability–without needing a single airplane purchase from China. The first presidential 747 was scheduled to be delivered in 2024, but now is not expected until 2026.At the very least, this latest mess turns up the heat for CEO Dave Calhoun, who has absorbed relentless slings and arrows from all corners for problems that largely predate him or are outside his control, including misfires with regulators, COVID shutdowns, order cancellations, and high indebtedness. ![]() “But we are where we are, and we're going to deliver great airplanes.” “We took some risks not knowing that Covid would arrive and not knowing that inflation would take hold like it has - and both of those have impacted us fairly severely," Calhoun said. The company now expects to lose about $1.1 billion on the Air Force One project. ![]() “Air Force One - I'm just going to call a very unique moment, a very unique negotiation, a very unique set of risks that Boeing probably shouldn't have taken,” Calhoun said in an earnings call. The new agreement established a fixed-price contract worth $3.9 billion, placing all the risks of cost overruns on Boeing. Former President Donald Trump in 2018 famously renegotiated the contract for the pair of 747s, which are referred to as Air Force One when the president is on board. Boeing CEO Dave Calhoun said Wednesday that the aerospace giant lost $660 million in the first quarter on the project building new presidential jets.
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